A primal-dual algorithm for BSDEs
We generalize the primal-dual methodology, which is popular in the pricing of early-exercise options, to a backward dynamic programming equation associated with time discretization schemes of (reflected) backward stochastic differential equations (BSDEs). Taking as an input some approximate solution of the backward dynamic program, which was pre-computed, e.g., by least-squares Monte Carlo, our methodology allows to construct a confidence interval for the unknown true solution of the time discretized (reflected) BSDE at time 0. We numerically demonstrate the practical applicability of our method in two five-dimensional nonlinear pricing problems where tight price bounds were previously unavailable.
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- Bouchard, Bruno & Elie, Romuald, 2008. "Discrete-time approximation of decoupled Forward-Backward SDE with jumps," Stochastic Processes and their Applications, Elsevier, vol. 118(1), pages 53-75, January.
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- Andrea Pallavicini & Daniele Perini & Damiano Brigo, 2012. "Funding, Collateral and Hedging: uncovering the mechanics and the subtleties of funding valuation adjustments," Papers 1210.3811, arXiv.org, revised Dec 2012.
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- Stéphane Crépey & Rémi Gerboud & Zorana Grbac & Nathalie Ngor, 2013. "Counterparty Risk And Funding: The Four Wings Of The Tva," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 16(02), pages 1350006-1-1.
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- repec:dau:papers:123456789/5524 is not listed on IDEAS
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